Last September, during the peak of market hysteria,
Goldman Sachs (NYSE: GS) and
Morgan Stanley (NYSE: MS), became bank
holding companies, ditching the investment banking model in
the shadow of Lehman Brothers' demise a few days before. Back
then, I called it
the death of Wall Street, as the investment banking world
suddenly embraced the security of commercial banking.
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Or so we thought.
Now that liquidity and confidence have returned, the need
for a bank charter -- which provides greater access to
Federal Reserve funds and emergency bailout procedures -- has
dwindled. Banks' profits have exploded. Pay packages are
setting records. Champagne flows freely. Nothing to see here:
It's like the meltdown never even happened.
A recent
Reutersarticle shows that some investors actually
believe this. They want Goldman to ditch its bank charter,
freeing itself from the associated pay restrictions and
leverage regulation.
"Bank earnings are hindered by too much regulation" said
one investor, who apparently missed the memo that Goldman's
making so much money,
record money
, that CEO Lloyd Blankfein had to
tell employeesto quit living large.
 Â
In Goldman's defense, it says it has no plans to dump its
bank charter. And thank goodness, really. Doing so would be
one of the worst ideas ever.
A reminder to Goldman investors: Markets are not fully
healed. They're being supported by a few trillion dollars of
backstops. Big difference.
Confidence has returned …. just like it
did in the fall of 2007, spring of 2008, and last December.
Maybe the worst is behind us. Maybe it's not. No one knows.
And that's the point. The old investment banking model works
great … until it doesn't, at which point
the pillars of the entire global financial system
collapse.
To assume that Mr. Market won't return with sledgehammer
in hand, mad as all hell, shows the tragedy of short-term
thinking. The liquidity aspect of this crisis has been
suppressed, thanks to massive Federal Reserve intervention,
but a bigger problem -- bad loans sitting on banks' books --
still looms. Banks like
Citigroup (NYSE: C),
Bank of America (NYSE: BAC), and maybe
Goldman itself, still hold mountains of assets whose true
value no one knows. Continued... |